Berenberg has reworked its view across the UK homebuilder sector, promoting Barratt Redrow and Bellway from hold to buy, and lowering Berkeley Group from buy to hold. The broker cited valuation differences, balance sheet robustness, and the capacity for capital returns as the decisive factors in a market it describes as challenging for margins.
At the same time, Berenberg reduced its average sector profit-before-tax (PBT) forecasts for 2027 by 15%. The bank's 2027 assumptions include 3% volume growth, mid-single-digit build-cost inflation and zero house price growth.
Berenberg highlighted two key headwinds compressing margins: elevated gilt yields and rising energy costs tied to geopolitical events in the Middle East. According to the note, both factors have kept mortgage rates at a higher level and have had an erosive effect on housebuilder margins.
Barratt Redrow
The broker set a new price target of 348 pence for Barratt Redrow, reduced from its prior target of 414 pence. That target sits above the company's current share price of 281 pence as cited by Berenberg. For fiscal 2027 the bank forecasts profit before tax of 510 million, a 9% year-on-year decline, with operating margin slipping to 9% from 10.3% in fiscal 2026.
Despite the earnings downgrade, Berenberg noted that the stock is trading at 0.6 times tangible net asset value (TNAV) and around 10 times earnings per share on what it described as "conservative forecasts." The broker also forecast net cash of roughly around 600 million at the end of fiscal 2026.
Berenberg estimated total capital returns for Barratt Redrow at 8% per annum and suggested the company could return close to 25% of its market capitalization over three years.
Bellway
The broker raised its price target for Bellway to 2,400 pence, up from 2,100 pence, while noting a current share price of 1,977 pence. This adjustment followed a 5% cut to profit forecasts for 2027-28.
For fiscal 2026 Berenberg forecast earnings before interest and tax of 327 million, a figure the broker said sits within the company's guidance range of 320 million to 330 million.
Berenberg valued Bellway at 0.6 times TNAV, describing that multiple as the low end of its 20-year range excluding the global financial crisis. The broker also pointed to a 150 million per annum share buyback, which represents roughly 7% of market capitalisation.
The broker estimated total returns for Bellway over three years at about around 700 million, approximately 32% of market capitalisation.
Berkeley Group and wider coverage
Berenberg left its price target for Berkeley Group unchanged at 4,000 pence, versus a current price of 3,734 pence, but moved the stock to a hold rating. The downgrade reflected the bank's assessment that Berkeley's one-year relative share price outperformance was minus 7% compared with minus 38% for the broader sector. Berkeley is forecast to trade at 1 times TNAV on the bank's numbers, with fiscal 2027 profit before tax expected at 393 million, down 13% year on year.
Across the sector Berenberg kept buy ratings on Taylor Wimpey and MJ Gleeson, and hold ratings on Crest Nicholson, Persimmon and Vistry. The broker also trimmed price targets for most names to reflect its weaker margin outlook.
The bank's repositioning emphasises valuation, balance-sheet strength and capital return capacity as differentiators at a time when higher borrowing costs and energy-driven input-price pressure have complicated the operating picture for UK housebuilders.